Lewa Pardomuan / Reuters

Singapore: Silver is catching up with gold’s gains, rebounding 11% since last month’s sharp drop as purchases from jewellers and bargain hunters resurfaced, but some investors will want to wait a while.

Spot silver hit a high of $12.25 on 6 September, within sight of a near three-week high of $12.35 hit earlier this week, driven by buying from Japanese speculators who took advantage of a firmer yen against the dollar.

Photography is based on silver halide crystals suspended on an unexposed film

“I’ve got clients who are buying silver, but the thing is that they are also waiting for the price to reach the upside to make sure the uptrend is sustainable," said a dealer in Singapore.

“I am bullish on gold and silver this year. We will surely see the market coming back to $13," said the dealer, referring to a level last seen in early August.

Silver, which often tracks gold, tumbled to its lowest since October 2006 at $11.03 an ounce on 16 August, when declines in stock markets and growing worries about gloval credit liquidity crisis ignited selling in precious metals.

But silver has steadily recovered, with a rebound in gold offering support. Falling gold/silver ratio was also supportive for the metal used in jewellery, photography and electronics.

The ratio slipped to 55.8 to 1 from 57 last month, said dealers. The ratio indicates the number of ounces of silver needed to buy one ounce of gold, and declining ratios are normally seen as a bullish signal.

Dealers said the physical market saw demand from India during the festive season as well as purchases from speculators in China. Silver is typically sold during the festival season when Indians buy coins and gift items, such as utensils or idols.

Silver is typically sold during the festival season when Indians buy coins and gift items, such as utensils or idols

“There’s a huge price difference between the domestic price in China and the international price. The demand is quite strong in China these days," said Ellison Chu, senior manager at Standard Bank London in Hong Kong.

“The price in China is 10% higher than in the international market," he said.

A recent Reuters poll shows average silver prices will jump 14% to $13.30 an ounce in 2007. Silver hit a 25-year high of $15.17 in May last year, and dealers said the growing popularity of exchange-traded funds will also generate investor interest.

A silver fund by Barclays Global Investors, launched in April last year, now holds 4,296.49 tonnes of silver.

“Silver looks to correct on the upside for sure. $12.90 is the next target, but I guess it needs to close above $12.21 this week to sustain the momentum," said another dealer in Singapore.

The Silver Institute, a trade group, said demand for silver jewellery surpassed the metal’s usage in the photography sector in the past two years, signaling robust growth.